Child Benefit Cuts: A Reader
As the argument around means testing child benefit heats up, I’d recommend a quick read of the following.
The National Archives have an excellent quick history of Child Benefit. Previous attempts at reform have not been especially popular.
A good example would be 1957:
In 1957, the Chancellor, Peter Thorneycroft, proposed cuts in public expenditure including family allowances. He argued that in removing the allowance for a second child, more money would be available for larger families where nutritional problems were more severe. Boyd-Carpenter effectively presented counter arguments. Thorneycroft resigned after the Prime Minister, Harold Macmillan, vetoed his proposals.
As ever, the IFS have put out a superb and impartial analysis.
A third implication, and the most serious from an economic point of view, is that this reform seriously distorts incentives for some families with children. In particular, adults with children whose income places them below the higher-rate income tax threshold might be find themselves considerably worse off from a small rise in income. This is because such a family would effectively lose all their child benefit as soon as the adult’s income rose just above the higher-rate income tax threshold.
A family with two children currently receives £1,750 a year in child benefit, so a one-earner couple with two children with a gross income between £43,876 and £46,850 would be worse off than if their income were £43,875. Equivalently, a one-earner couple with an income of £43,875 would need a pay rise of £2,975 or more to ensure they were no worse off after paying income tax and national insurance and losing child benefit.
Nicola Smith has an excellent article on Left Foot Forward defending the notion of universal payments.
Today’s announcement is extremely bad news for working families – both those who will no longer receive Child Benefit and those who will now inevitably see the value of their benefits and Tax Credits fall in the future as the principle of universal welfare in the UK is further eroded.
This is going to be politically painful. Ministers are pretty gobsmacked by the chancellor’s announcement, and they fear a backlash. It might not sound like big numbers in the scheme of things but this is a cut which will affect very vocal middle England voters. Mumsnet is also on the warpath. I’m off to a reception hosted by them now. David Cameron and George Osborne are invited – will they dare to turn up? I’ll report back.